Published by the Stockbrockers Association of Australia in the Stockbrokers Monthly, July 2016.

By Commissioner Cathie Armour.

I am the ASIC Commissioner with responsibility for the ASIC teams that supervise stockbrokers. Recently, I attended the SAA Annual Conference where I met and spoke with many of you.

It was mentioned at the SAA conference that the number of disputes about stockbrokers accepted by the Financial Ombudsman Service (FOS) is gobsmackingly low. In the 2014–15 financial year, accepted disputes against stockbrokers represented 90 out of a total of 25,800. Less than half of one percent of disputes before FOS related to this industry! ^[1]

This result speaks to the commitment your profession has to the proper functioning of this industry, and its role in achieving fair and efficient markets.

Examples of suspicious activity reports

Another indicator of the commitment of your profession is the growing number of suspicious activity reports ASIC is receiving. These reports are an example of stockbrokers taking direct action to keep our markets clean.

Recent example 1:

An executive of Company A indirectly opened a trading account with a stockbroker. Shortly later, Company A listed and the client began buying small parcels of shares in Company A (and only Company A), which had a price impact.

The stockbroker attempted to contact the client to ask about their trading strategy and whether they had a connection to Company A. The mobile number on the client’s application form was answered by the executive, and the connection was established.

Given this event, the timing of the account opening and subsequent trading patterns, the stockbroker formed the view that the trading may be an attempt to manipulate the share price. They submitted a suspicious activity report to ASIC that day.

Recent example 2:

A client bought a large volume of mining shares immediately before a trading halt was called pending the release of exploration test results. Soon after the same client submitted an order to purchase a large number of other shares in another company. Similarly, immediately after the purchase of these shares the company released a material announcement to the market.

The coincidence of timing, with both large orders being placed by the same client immediately before market announcements, gave rise to suspicions the client may have been in possession of material information yet to be made public. A suspicious activity report was sent to ASIC.

Reports like this demonstrate that stockbrokers aren’t willing to tolerate individuals trying to manipulate the market in their favour, and at the expense of the 6.5 million other Australians who own shares or other listed investments.

Technology contributing to market integrity

Advanced technology is also contributing to the integrity of our markets. ASIC has introduced leading technologies, with the support of industry funding, such as our Markets Analysis and Intelligence (MAI) surveillance system and the Market Entity Compliance System (MECS).^[2]

As well as improving market confidence and integrity, MAI has enabled us to reduce the number of notices we issue to stockbrokers by almost half since 2011. Not only are there fewer notices (and these continue to fall); they are more specific and targeted. This saves you time and ensures your contributions are productive.

There are now 400 individuals from 150 market entities who use MECS. In the 12 months since going live, over 1,000 applications and notifications have been submitted through MECS. The user feedback we have is that undertaking regulatory functions through MECS is now simpler and more efficient.

We will continue to look at how we can use technology to reduce the regulatory burden, and improve industry communication and compliance.

Your contribution and vigilance in all forms is greatly appreciated.

Looking ahead

At the SAA conference ASIC Chairman, Greg Medcraft, spoke about our priorities for markets regulation. These are:

• cyber resilience
• conduct risk, and
• handling of confidential information and conflicts of interest.

You can read Greg's speech on the ASIC website.

In the coming weeks, we will write to stockbroking businesses directly to communicate our regulatory priorities for 2016–17 in greater detail.

This will assist us to work together to achieve our shared purpose.